In a significant decision, a federal appeals court has barred New Jersey from temporarily banning Kalshi, a prediction market platform, handing the company a crucial victory against a wave of state-led enforcement actions. The ruling, issued by a 2-1 majority, determined that Kalshi's products fall under the federal Commodity Exchange Act, superseding New Jersey's state gambling laws. The court found that Kalshi had self-certified compliance with applicable laws and regulations, and as a result, its event contracts were presumptively approved under federal law. The Commodity Futures Trading Commission (CFTC) has not initiated any enforcement actions against sports-related event contracts, and the ruling emphasized that New Jersey's proposed requirements would set an overly high bar.
In a dissenting opinion, one judge argued that New Jersey's rules did not undermine the objectives of the Commodity Exchange Act and that Kalshi's products constituted sports gambling. The decision comes as states across the US have launched lawsuits or issued cease-and-desist orders against prediction market providers, including Kalshi and Polymarket, alleging violations of state gambling laws.
The CFTC has maintained that prediction markets are governed by the Commodity Exchange Act, which preempts state rules. The ruling may have significant implications for the industry, as different courts have issued conflicting decisions on the matter. The CFTC Chairman has emphasized the importance of defending the regulator's exclusive jurisdiction over these markets, and the agency has filed a brief in support of this position ahead of an upcoming hearing.